The Portfolio (not including its overlay component) will invest at least 25% of its total assets in fixed
income senior securities and at least 25% of its total assets in equity securities. In addition, the subadviser
employs a “VCP” (Volatility Control Portfolio) risk management process intended to manage the
volatility level of the Portfolio’s annual returns. The Portfolio may, at times, invest significantly in
certain sectors, such as the information technology sector.
When deciding upon overall allocations between stocks and fixed income securities, the subadviser may favor
fixed income securities if the economy is expected to slow sufficiently to hurt corporate profit growth. When
strong economic growth is expected, the subadviser may favor stocks. The fixed income securities in which the
Portfolio intends to invest, including the foreign fixed income securities, are primarily investment grade and
are chosen from across the entire government, corporate, and asset- and mortgage-backed securities markets.
Maturities generally reflect the subadviser’s outlook for interest rates.
When selecting particular stocks, the subadviser will examine relative
values and prospects among growth- and value-oriented stocks, domestic and foreign stocks, small- to large-cap
stocks, and stocks of companies involved in activities related to commodities and other real assets. Domestic
stocks are drawn from the overall U.S. market and foreign stocks are selected primarily from large companies in
developed countries, although stocks in emerging markets may also be purchased. This process draws heavily upon
the proprietary stock research expertise of the subadviser. While the Portfolio maintains a well-diversified
portfolio, the subadviser may at a particular time shift stock selection toward markets or market sectors that
appear to offer attractive value and appreciation potential.
A similar security selection process applies to fixed income securities. When deciding whether to adjust duration, credit risk exposure, or allocations among the various sectors (for example, junk bonds, mortgage- and asset-backed securities, foreign fixed income securities and emerging market fixed income securities), the subadviser weighs such factors as the outlook for inflation and the economy, corporate earnings, expected interest rate movements and currency valuations, and the yield advantage that lower-rated fixed income securities may offer over investment grade fixed income securities.
Securities may be sold for a variety of reasons, such as to effect a change in asset allocation, secure a
gain, limit a loss, or redeploy assets into more promising opportunities.
The Portfolio targets a volatility level of 10% within a range of 9% to 13%. Volatility is a statistical
measure of the magnitude of changes in the Portfolio’s returns over time without regard to the direction
of those changes. The subadviser expects to use a variety of equity index and fixed income futures and currency
forwards as the principal tools to implement this volatility management strategy. The Portfolio’s overall
equity exposure may be reduced to approximately 20% as a result of the volatility management strategy. In
addition, the subadviser will seek to reduce exposure to certain downside risks by purchasing equity index put
options that aim to reduce the Portfolio’s exposure to certain severe and unanticipated market events
that could significantly detract from returns.
Volatility is
not a measure of investment performance. Volatility may result from rapid and dramatic price swings. Higher
volatility generally indicates higher risk and is often reflected by frequent and sometimes significant
movements up and down in value. The Portfolio could experience high levels of volatility in both rising and
falling markets. Due to market conditions or other factors, the actual or realized volatility of the Portfolio
for any particular period of time may be materially higher or lower than the target level.
The Portfolio’s target volatility level of 10% is not a total return performance target. The Portfolio
does not expect its total return performance to be within any specified target range. It is possible for the
Portfolio to maintain its volatility at or under its target volatility level while having negative performance
returns. Efforts to manage the Portfolio’s volatility could limit the Portfolio’s gains in rising
markets, may expose the Portfolio to costs to which it would otherwise not have been exposed, and if unsuccessful may result in substantial losses.
Principal Risks of Investing in the Portfolio
As with any mutual fund, there can be no assurance that the
Portfolio’s investment goal will be met or that the net return on an investment in the Portfolio will exceed what could have been obtained through other investment or savings vehicles. Shares of the Portfolio are not bank deposits and are not guaranteed or insured by any bank, government entity or the Federal Deposit Insurance Corporation. If the value of the assets of the Portfolio goes down, you could lose money.
The value of your investment in the Portfolio may be affected by one or more of the following risks, which are described in more detail in the sections “Additional Information About the Portfolios’ Investment Strategies and Investment Risks (Other than the SA VCP Dynamic